Italy, Spain see economic growth falter to multi-year lows

LONDON (AP) — The economies of Italy and Spain faltered over the summer months and are now growing at their slowest rates in years, according to a closely watched survey of the 19-country eurozone. Though the single currency bloc continues to expand at a healthy tick, financial information firm IHS Markit cautioned Wednesday about developments in the eurozone's number 3 and 4 economies.

September 05, 2018

It main index of business activity across the eurozone's manufacturing and services — called the composite purchasing managers' index — rose to 54.5 points in August from 54.3 the previous month. Anything above 50 indicates expansion and August's level points to quarterly economic growth of around 0.4 percent, in line with the second-quarter outcome.

Much of the growth, however, was due to Germany, the region's biggest economy, and to a lesser extent France. Chris Williamson, the firm's chief business economist, cautioned about developments in Italy and Spain, with the former "on course for its weakest expansion for nearly two years." For Spain, he said, growth could be even the "worst for almost five years."

Spain has been growing strongly for years, so a slowdown had been anticipated. In the second quarter of the year, it grew at a still-healthy annual rate of 2.7 percent. Italy, on the other hand, has not seen growth as strong as Spain's for years and in the second quarter of 2018 expanded at an annual rate of just 1.1 percent. Tepid growth has been one of the main reasons why Italians voted in such large numbers for more populist parties in this year's election.

The worry in financial markets is that Italy's new coalition government could ramp up its anti-euro rhetoric if growth stumbles further, especially after the European Central Bank end its bond-buying stimulus program this year, as it has signaled it will do.

Daniel Harenberg, a senior economist at Oxford Economics, said Wednesday's survey highlights again that the business cycles in the eurozone are "not perfectly in sync," with Italy potentially more affected by a slowdown in export orders in Germany.

"This bears the potential to heighten political tensions between the Italian government and European institutions once the ECB stops its quantitative easing towards the end of the year," he said.